What began as a deliberative and fairly straightforward legislative process to establish an interstate banking law in the District has degenerated into a mishmash of ambiguities and questionable assumptions.

The latest example is the tardy debate over what types of banks should be permitted in the District. The Barry administration favors what amounts to an open-door policy for all banks; D.C. Council member Charlene Drew Jarvis wants to bar entry by certain banking organizations that she contends are trying to circumvent the city's interstate banking law.

After a year of preliminary discussions, hearings, intense lobbying, political ploys, passage of two versions of an interstate banking bill and, finally, a couple of mergers involving D.C. banks, the mayor and the council are exactly where they were this time a year ago: back to square one.

The most critical question -- one that should have been addressed fully before passage of any new banking legislation -- still isn't settled. It very likely won't be settled until the mayor and the council can agree on the economic justification for ushering in interstate banking. Until then, the mayor and the council will be chasing back and forth through loopholes and political brambles.

Initially, District officials supported a campaign by D.C. bankers to get Congress to approve legislation that would have established a special interstate zone for banks in Washington, Maryland and Virginia. When that effort failed, D.C. bankers climbed aboard the bigger regional interstate bandwagon, which, by then, had picked up momentum in Maryland, Virginia and several southeastern states.

The city council this year approved a banking bill similar to those that had been passed earlier in Virginia and Maryland, calling for reciprocal agreements allowing interstate mergers in the mid-Atlantic and Southeast. But the council subsequently backtracked, acceding to the wishes of the mayor, who pushed for full interstate banking in the face of a massive lobbying campaign, led by New York's Citicorp.

A new interstate bill, permitting entry into the District by any bank that agrees to stringent investment requirements, was supposed to have covered any contingency or loophole. When some members of Congress complained about a loophole in the city's banking law that went into effect in April, Jarvis insisted there were no loopholes in the legislation.

As the loophole debate raged, 11 out-of-state banking organizations and other companies were seeking permission from the Comptroller of the Currency to open banks in the District, not under federal, but D.C., charters. Some D.C. officials and local bankers regard that as an attempt to contravene the city's interstate banking law.

So now Jarvis wants to close this loophole by offering legislation that would bar entry by those institutions.

While that might appear to be inconsistent with the D.C. government's announced goal and policy of opening up the city to out-of-state banking organizations as a way to increase economic development, Jarvis' bill is the key to maintaining consistency in the District's banking law. It is not, as has been suggested, an attempt to keep out nonbank banks. That's the term commonly used to describe limited-service institutions that either make commercial loans or offer consumer banking services, but not both.

Now that a full interstate banking policy has been firmly established in the District, any retreat from that policy might leave D.C. officials open to charges of discrimination and convey the impression that the local government is inconsistent.

Companies applying for D.C. bank charters would not come under the investment rubric that applies to banks seeking federal charters unless they were full-service institutions. There is no indication that federally chartered full-service banks are lining up to buy D.C. banks, hire hundreds of city residents and invest millions of dollars in blighted neighborhoods. With Citicorp being the notable exception, only Virginia bank holding companies have shown any interest in buying D.C. banks. Citicorp adroitly avoided what probably would have been a costly bank acquisition and a windfall for local investors by bidding to take over a troubled thrift in the District.

With 11 organizations anxious to open banks in the District, local officials have a critical choice to make: hold to the standard established for all banks from outside the region (the Comptroller's Office maintains all but one of the 11 applicants have indicated plans to operate full-service banks), or welcome 11 companies that, in the normal course of doing business, would help stimulate competition and economic growth.

With his observation, "These institutions are a fact of economic life," Curtis McClinton, D.C.'s deputy mayor for economic development, seems to be undermining the city's established policy.